6. Income Taxes

The statutory income tax rates of the countries where the Company does business are 35% in the United States, 0% in Bermuda, 0% in the Cayman Islands, 0% in Gibraltar, 29.22% in the Duchy of Luxembourg, and 25% on non-trading income, 33% on capital gains and 12.5% on trading income in the Republic of Ireland. The statutory income tax rate of each country is applied against the expected annual taxable income of the Company in each country to estimate the annual income tax expense. Generally, during interim periods, the Company will divide total estimated annual income tax expense by total estimated annual pre-tax income to determine the expected annual income tax rate used to compute the income tax provision. The expected annual income tax rate is then applied against interim pre-tax income, excluding net realized gains and losses and limited partnership distributions, and that amount is then added to the actual income taxes on net realized gains and losses, discrete items and limited partnership distributions. However, when there is significant volatility in the expected effective tax rate, the Company records its actual income tax provision in lieu of the estimated effective income tax rate. In 2015, the Company recorded its income tax provision using a discrete period computation because a reliable estimate of an effective tax rate could not be made.

The Company’s income before income taxes from its non-U.S. subsidiaries and U.S. subsidiaries, including the results of the quota share and stop-loss agreements between Global Indemnity Reinsurance and the Insurance Operations, for the quarters and nine months ended September 30, 2015 and 2014 were as follows:


Quarter Ended September 30, 2015: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	67,543		$	140,268		$	(57,663	)	$	150,148

Net premiums written	$	67,534		$	54,963		$	—		$	122,497

Net premiums earned	$	70,532		$	54,175		$	—		$	124,707
Net investment income		10,644			4,783			(6,575	)		8,852
Net realized investment losses		(1,256	)		(9,522	)		—			(10,778	)
Other income		(11	)		1,290			—			1,279

Total revenues		79,909			50,726			(6,575	)		124,060
Losses and Expenses:
Net losses and loss adjustment expenses		39,849			37,842			—			77,691
Acquisition costs and other underwriting expenses		30,504			20,430			—			50,934
Corporate and other operating expenses		1,648			1,919			—			3,567
Interest expense		1,501			6,669			(6,575	)		1,595

Income (loss) before income taxes	$	6,407		$	(16,134	)	$	—		$	(9,727	)


Quarter Ended September 30, 2014: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	38,387		$	56,491		$	(27,780	)	$	67,098

Net premiums written	$	38,366		$	24,896		$	—		$	63,262

Net premiums earned	$	43,238		$	24,790		$	—		$	68,028
Net investment income		7,713			3,655			(4,841	)		6,527
Net realized investment gains (losses)		(10	)		1,168			—			1,158
Other income (loss)		(38	)		164			—			126

Total revenues		50,903			29,777			(4,841	)		75,839
Losses and Expenses:
Net losses and loss adjustment expenses		18,939			17,715			—			36,654
Acquisition costs and other underwriting expenses		17,762			9,696			—			27,458
Corporate and other operating expenses		1,156			2,325			—			3,481
Interest expense		193			4,766			(4,841	)		118

Income before income taxes	$	12,853		$	(4,725	)	$	—		$	8,128


Nine Months Ended September 30, 2015: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	289,940		$	411,310		$	(241,718	)	$	459,532

Net premiums written	$	289,892		$	104,714		$	—		$	394,606

Net premiums earned	$	214,667		$	166,254		$	—		$	380,921
Net investment income		32,146			13,594			(19,506	)		26,234
Net realized investment losses		(1,643	)		(5,573	)		—			(7,216	)
Other income (loss)		(77	)		2,485			—			2,408

Total revenues		245,093			176,760			(19,506	)		402,347
Losses and Expenses:
Net losses and loss adjustment expenses		115,654			111,216			—			226,870
Acquisition costs and other underwriting expenses		92,368			57,750			—			150,118
Corporate and other operating expenses		3,395			16,046			—			19,441
Interest expense		2,325			19,816			(19,506	)		2,635

Income (loss) before income taxes	$	31,351		$	(28,068	)	$	—		$	3,283


Nine Months Ended September 30, 2014: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries		Eliminations			Total
Revenues:
Gross premiums written	$	139,714		$	170,038	$	(82,552	)	$	227,200

Net premiums written	$	138,677		$	73,818	$	—		$	212,495

Net premiums earned	$	126,551		$	75,038	$	—		$	201,589
Net investment income		22,947			13,980		(14,439	)		22,488
Net realized investment gains		1,017			39,209		—			40,226
Other income (loss)		(41	)		490		—			449

Total revenues		150,474			128,717		(14,439	)		264,752
Losses and Expenses:
Net losses and loss adjustment expenses		51,818			61,678		—			113,496
Acquisition costs and other underwriting expenses		52,637			28,477		—			81,114
Corporate and other operating expenses		4,034			5,580		—			9,614
Interest expense		647			14,420		(14,439	)		628

Income before income taxes	$	41,338		$	18,562	$	—		$	59,900

The following table summarizes the components of income tax expense (benefit):


	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2015			2014			2015			2014
Current income tax expense:
Foreign	$	67		$	39		$	228		$	164
U.S. Federal		(579	)		(1,571	)		(2,126	)		5,980

Total current income tax expense (benefit)		(512	)		(1,532	)		(1,898	)		6,144

Deferred income tax expense (benefit):
U.S. Federal		(5,469	)		(101	)		(8,984	)		1,964

Total deferred income tax expense (benefit)		(5,469	)		(101	)		(8,984	)		1,964

Total income tax expense (benefit)	$	(5,981	)	$	(1,633	)	$	(10,882	)	$	8,108

The following table summarizes the differences between the tax provision for financial statement purposes and the expected tax provision at the weighted average tax rate:


	Quarters Ended September 30,
	2015						2014
(Dollars in thousands)	Amount			% of Pre- Tax Income			Amount			% of Pre- Tax Income
Expected tax provision at weighted average rate	$	(5,580	)		(57.4	%)	$	(1,614	)		(19.9	%)
Adjustments:
Tax exempt interest		(107	)		(1.1	)		(120	)		(1.5	)
Dividend exclusion		(175	)		(1.8	)		(229	)		(2.8	)
Effective tax rate adjustment		—			0.0			288			3.5
Other		(119	)		(1.2	)		42			0.6

Actual tax on continuing operations	$	(5,981	)		(61.5	%)	$	(1,633	)		(20.1	%)

The effective income tax benefit rate for the quarter ended September 30, 2015 was 61.5%, compared to an effective income tax benefit rate of 20.1%, for the quarter ended September 30, 2014. The increase in the effective tax benefit rate is primarily due to capital losses in the quarter ended September 30, 2015. Taxes were computed using a discrete period computation because a reliable estimate of an effective tax rate could not be made.


	Nine Months Ended September 30,
	2015						2014
(Dollars in thousands)	Amount			% of Pre- Tax Income			Amount			% of Pre- Tax Income
Expected tax provision at weighted average rate	$	(9,595	)		(292.3	%)	$	6,649			11.1	%
Adjustments:
Tax exempt interest		(326	)		(9.9	)		(490	)		(0.8	)
Dividend exclusion		(588	)		(17.9	)		(1,186	)		(2.0	)
Effective tax rate adjustment		—			0.0			2,600			4.3
Other		(373	)		(11.4	)		535			0.9

Actual tax on continuing operations	$	(10,882	)		(331.5	%)	$	8,108			13.5	%

The effective income tax benefit rate for the nine months ended September 30, 2015 was 331.5%, compared to an effective income tax expense rate of 13.5% for the nine months ended September 30, 2014. The decrease in the effective tax rate is primarily due to expenses related to the acquisition of American Reliable Insurance Company in 2015 and large capital gains in 2014. Taxes were computed using a discrete period computation because a reliable estimate of an effective tax rate could not be made.

The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets at September 30, 2015 and December 31, 2014 are presented below:


(Dollars in thousands)	September 30, 2015		December 31, 2014
Deferred tax assets:
Discounted unpaid losses and loss adjustment expenses	$	8,739	$	7,492
Unearned premiums		8,117		3,409
Alternative minimum tax credit carryover		10,587		10,473
Net operating loss carryforward		6,264		—
Partnership K1 basis differences		245		145
Capital gain on derivative instruments		6,483		4,786
Investment impairments		2,709		379
Stock options		2,578		2,048
Deferred acquisition costs		149		187
Stat-to-GAAP reinsurance reserve		1,364		1,424
Intercompany transfers		1,738		1,919
Depreciation and amortization		93		—
Other		4,115		3,050

Total deferred tax assets		53,181		35,312

Deferred tax liabilities:
PGAAP adjustment for American Reliable		6,095		—
Intangible assets		4,615		3,220
Unrealized gain on securities available-for-sale and investments in limited partnerships included in accumulated other comprehensive income		4,827		10,263
Investment basis differences		1,066		692
Depreciation and amortization		—		16
Other		769		871

Total deferred tax liabilities		17,372		15,062

Total net deferred tax assets	$	35,809	$	20,250

Management believes it is more likely than not that the deferred tax assets will be fully utilized in future years. As a result, the Company has not recorded a valuation allowance at September 30, 2015 and December 31, 2014.

The Company has an alternative minimum tax credit carry forward of $10.6 million and $10.5 million as of September 30, 2015 and December 31, 2014, respectively, which can be carried forward indefinitely. The company has a net operating loss (“NOL”) carryforward of $6.3 million as of September 30, 2015. The company has no NOL carryforward as of December 31, 2014.